ILECS, Others Sound Alarm on RDOF Phase I Results

ILECs and broadband advocates want a stronger FCC vetting process for Rural Digital Opportunity Fund II bidders. Several companies won billions of dollars during the RDOF Phase I auction to deploy services they may be unable to provide (see 2012070039), stakeholders said in recent interviews.

The vetting process has been contentious for rural broadband providers. Commissioners should ensure transparency and accountability in the distribution of funds, said NTCA CEO Shirley Bloomfield. "We would have preferred, and repeatedly asked for, more of this diligence to be conducted prior to qualifying bidders in the auction, but that didn’t happen.”

The winning bidders have until Feb. 15 to demonstrate they can deliver the services they bid for, many of which were at the gigabit level. “I have yet to find a person that works in this space that credibly believes that this can be done on a significant scale across the distances that are required in rural America,” said Christopher Mitchell, director of the Institute for Local Self-Reliance's community broadband networks initiative. “I don't understand how the FCC can throw billions of dollars at these companies knowing what we know about the state of the technology and the capacity of some of the companies.”

The FCC ultimately saved $6.8 billion of the $16 billion set aside for Phase I, which will now go toward the Phase II auction. “I'm sure that the FCC is very pleased with the outcome and would be likely to want to extend that type of model where you're putting market forces into the determination of the appropriate amount of subsidy rather than establishing it by whoever is there now,” said analyst Billy Gregg.

Commissioner Brendan Carr praised the auction results during a Dec. 15 Fiber Broadband Association event, calling it the “biggest down payment ever in terms of a commitment to closing the digital divide.” But Bloomfield said unserved consumers and federal program dollars “hang in the balance,” and “we don’t want to wait five or six years to discover any problems or technical shortcomings.”

Among the concerns raised about the auction results is that the FCC relied on inaccurate broadband mapping data. AT&T’s Joan Marsh blogged that nearly 5 million could remain unserved as a result (see 2012150029). Free Press General Counsel Matt Wood argued that Chairman Ajit Pai rushed to spend RDOF funds despite imperfect data. “The problem with the FCC’s maps typically has been overstatement of coverage,” Wood said, citing SpaceX's winning bid to deploy broadband in a parking lot next to the Pentagon as an example of a "robotic misapplication of the funding."

A Free Press analysis of the winning bids found several instances of RDOF funds going to locations with already-served luxury homes, including one California neighborhood that already receives gigabit service to homes on one side of the street.

Several wireless ISPs won bids to build fiber, which CCG Consulting President Doug Dawson lamented. “These bidders have to be betting that the FCC will work with them rather than be embarrassed by reversing huge amounts of grant awards,” Dawson blogged. In one area, which he couldn't disclose due to the FCC's quiet period, Dawson determined that building fiber would require at least 50% of the RDOF reserve price. That area was ultimately awarded to a provider that bid at 10% of the reserve price. "Some grant bidders are promising to build fiber for absurdly low amount of grant awards," Dawson blogged. "That is not financially possible." The story has gotten "a lot worse" since his last blog, Dawson emailed us, "where the winners went as low as 1% of the bid amount [and] a lot of places under 5%."

New Street’s Blair Levin expressed skepticism about wireless providers’ ability to deploy gigabit-tier services, telling investors “there are problems that have yet to be worked out regarding the enforceability of the auction winners’ commitments, and those problems have a variety of implications for the market.”